Welcome to The Great Housing Bubble

Since the beginning, the IHB has focused on educating people on the subject of real estate. Over the years, we have developed an extensive library of blog posts, forum threads, outside links and a book on real estate. We encourage you to explore the library and find answers to your real estate questions. To begin your journey, click on any of the bookshelves below.

Thank you again for allowing us the opportunity to present ourselves to you in this manner. We look forward to working with you.

IHB Property Valuation Reports

Over the first few years of writing for the IHB, I outlined a number of property valuation principals based on the property’s rental cashflow. Pulling together all the financial information about a property into a single report allows buyers to make informed purchases and allows sellers to establish a pricing strategy that will allow them to sell for the best possible price.

The IHB Property Valuation Report is six pages of calculations and notes. It sounds intimidating at first, but once you go through the information it contains, you will not want to buy or sell real estate without this report.

Cover Sheet

The report cover sheet contains summary information; it has some pictures, the address, and a few defining characteristics to identify the property. The first piece of summary data is the asking price, and this is followed by the Comparable Value, the Likely Transaction Price, and the IHB Fundamental Value.

When we prepare a Brokers Opinion of Value, we include what we believe to be the most Likely Transaction Price based on recent comparable sales and the trend of the market. This is our best guess at what the final sales price of this property will be.

The IHB Fundamental Value is based on the rental comps with some subjective adjustment based on a property’s desirability. Since market information is always changing, the report is time sensitive, and it is dated for reference.

Cost of Ownership and Acquisition

The second page of the report is full of of data and calculations. It looks daunting at first, but it is arranged to provide six (6) data points critical to understanding a property purchase:

Monthly Payment

Monthly Cash Outlays

Monthly Cost of Ownership

Monthly Ownership Gain (loss)

Total Cash Costs

Total Savings Needed

The first three items on the list look superficially similar, but they all provide slightly different information. The monthly payment is the check you will write each month to your lender; pretty basic. We assume conventional 30-year mortgages in our calculations because it is the stable financing of long-term homeowners.

The monthly cash outlays is the total amount of all checks a homeowner will need to write each month to be current on payments, including property taxes, insurance, HOA fees and other expenses. This amount is often much larger than most people realize. Some will try to reduce their monthly cash outlays by deferring property taxes to a lump sum payment every six months, but the expense is still there, and this total can eat up a significant portion of someone’s take-home pay. I recommend using an impound account to pay property taxes to avoid the last-minute scramble.

The monthly cost of ownership is a more accurate accounting of the true cost of owning property. There are many items which add to or subtract from the actual cost of ownership such as (1) income tax savings, (2) equity hidden in the payment, (3) lost income on the downpayment money, and (4) maintenance and replacement reserves.

Once the full cost of ownership is properly calculated, this figure can be compared to the cost of a comparable rental. Any cost savings or ownership premium is reflected here. As mentioned previously, blue chip properties often carry an ownership premium whereas undesirable properties generally demonstrate significant positive cashflow.

The final area of concern is having the cash available to close the deal. The downpayment is an easy expense to identify, but it is not the only cash a buyer will need to obtain the property. Buyers have to budget moving and furnishing expenses, closing costs and interest points (if any) to accurately assess their cash needs. Also, it is not a good idea to spend all your cash on a house and leave no emergency reserves. The spreadsheet estimates 6 months net salary based on the financing qualifications for the loan amount. The total cash costs plus emergency reserves equal the total amount of liquid savings needed to close the transaction.

Estimates of Value

The third page looks at values and sets the stage for negotiation. It is composed of three sections:

Comparative Sales Value and Negotiating Range

Cashflow Value and IHB Fundamental Value

Asking Price and Value Ranges (chart)

In Negotiating for Real Estate, I outlined the negotiation process and described how the top and bottom of the negotiation range is established. The Comp Range is a measure of the highest and lowest prices of recent comparable sales. The Comparable Sales Value is a blend of the mean and the median of comps used to establish value. By blending the two values, it recognizes outliers without putting too much emphasis on them.

In a stable market, properties may trade at a premium or discount to rental parity based on their desirability as owner-occupied housing. The most desirable “blue chip” properties trade at a 10% premium to rental parity, and transitory rental properties trade as low as 25% below rental parity. When the IHB prepares a Brokers Opinion of Value, we subjectively rate the property based on its owner-occupant desirability, and we adjust the cashflow value of based on our market experience. The resulting value is a theoretical basis for a property’s minimum value in the open market. When prices begin to fall, they generally do not stop until all properties in a market reach their fundamental value.

The chart showing asking prices and value ranges displays all the numbers in an intuitive format and shows the relationships between the numbers. For instance, in the chart below, the negotiating range and the comp range is significantly above a property’s current cashflow value. A buyer wanting to pay cashflow value will not obtain this property as market comps reflect a large ownership premium.

Comparable Sales, Comparable Rentals and concept notes

Page four of the report has the raw data on comparable sales and comparable rentals used to generate the report. This important raw data eliminates much confusion and debate over current valuations. The sections on Comparable Sales Value and Likely Transaction Price and Cashflow Value and IHB Fundamental Value generates the most questions and confusion, so a more detailed explanation of these concepts is included.

Report notes

In an effort to explain many of the concepts and calculations in the report, we have included a line-by-line series of notes detailing any assumptions.

Ignorance is …

George Orwell in 1984 wrote, “Ignorance is Strength” to describe how power is maintained by the few through the ignorance of the many. Those who are responsible for helping people buy and sell homes have preyed on the ignorance of buyers for generations to maintain their strength. They see little reason to change.

Thomas Gray in “Ode on a Distant Prospect of Eton College” wrote the line, “Ignorance is Bliss” to illustrate that ignorance to a problem creates happiness—while the ignorance lasts. This bliss may be welcome at times when the problem is intractable, but ignorance that prevents people from taking appropriate action does not lead to bliss, it leads to pain.

Ignorance is Pain. Ignorance to the housing market can lead to foreclosure and bankruptcy. There is nothing noble or romantic about ignorance to the value of real estate. I have no need to exaggerate the importance of getting this decision right.

I used the tools encapsulated in this report to avoid buying during The Great Housing Bubble. I have shared my methodology with you, and now, the IHB set up to work with you to apply these techniques to your personal situation.

Informed Decisions

I want people to make informed decisions. Based on these reports, some people will wait, some people will look elsewhere, and some people will buy anyway. We do not attempt to persuade; most people are self-motivated when it comes to real estate, and when contemplating such a large purchase, pressure just makes the process stressful.

In time the numbers will say “yes.” I will know when the time is right because my analysis will tell me. Now, the same information is available to you.

Thank you again for allowing us the opportunity to present ourselves to you in this manner. We look forward to working with you.

Sincerely,

Larry Roberts

When you are ready to buy or sell a home, we are here to serve you.

Forward this to your friends:

To facilitate your home search, go to http://www.idealhomebrokers.com/ and set up a property search; this is a good idea for both buyers and sellers. As a buyer, you want to spend some time watching the market and see the location and the quality of properties that meet your search criteria. As a seller, you should also watch the market for properties because these are your competitors vying for the same buyers. Spending some time watching the market will help you understand the pricing dynamics in your neighborhood.

On the home page, you will see a box similar to the one presented above. This is your portal to the Multiple Listing Service (MLS). You can create custom property searches based on a variety of criteria, and with registration, you can save searches, and even have the results emailed to you or sent to an RSS feed.

At the top of the map, you see two tabs: one for the map view and one for a property detail view. Once you have selected a property in the map view, the program will automatically switch to detailed view and provide additional property data. To switch back to the map, click on the map tab.

The map itself can be navigated by dragging the map around with your mouse, and by zooming in to see specific neighborhoods and zooming out to see entire cities or regions.

There is also a link to register with the service to get listing updates, save searches and perform other tasks. Registration is very easy and requires little personal information.

Enter your name and email address and choose a password. That is it. There is no more information required than what you entered when you signed up for this email program.

In the upper right corner, there are 3 links, a quick-jump navigation box, a menu to change the underlying display, and a pop up with detail on the neighborhood being viewed.

Once you have set up an account, you will want to click the “login” link to access your saved searches and other tools. The “help” link brings up a box with pertinent help information. The “Chat with the Team” link will call up a box allowing you to chat with a representative of Diverse Solutions the provider of the mapping system. This chat function will not link you to a member of the IHB.

If you want to quickly zoom to a particular city, zip code or MLS listing, you can directly put this information in the “jump” box and press “enter.” The system will automatically take you to this location without having to navigate the map.

You can view the map as terrain, an air photo, or a hybrid between the two. It is very similar to how Google Maps or other mapping applications present their data.

Once you are zoomed in to a specific area, you can click on the “map statistics” link on the side of the map, and various statistics about the area will be displayed.

The default settings will show you every property for sale in the mapped area. You will want to narrow your search to view only properties you are interested in.

On the left side of the map is a series of boxes and sliders that allow you to input your search criteria. You can either manually enter information into the boxes, or you can use your mouse to adjust the sliders beneath the boxes, and the software will automatically put numbers in the boxes for you.

Whenever you are searching for properties in a market, it is wise to broaden your parameters to see properties just outside your range of consideration. Oftentimes what happens is that you see a fantastic property outside of your normal parameters that catches your attention. This may reveal the parameters you thought were important may not reflect your true needs and desires. If you set your parameters too tight, you might have your ideal home filtered from your view.

The first data point is the location where you wish to search. The MLS allows you to search by city, community, tract name or zip code. As you type the software fills in potential locations that match your query. The database is extensive.

The next data point is the price range for your search. The IHB learning center has information on how to properly estimate the amount you should pay for a home based on your savings and income. For purposes of watching the market, you may wish to extend these ranges a little below and a little above your intended price range to get a better understanding of how location and quality impact pricing for properties that are in your price range.

The next data point is the number of bedrooms and baths you require. Note that this is what you require, not necessarily what you desire. For example, if you want a 4 bedroom, but you only really need a 3, you should set this at 3 bedrooms to see the full range of available housing opportunities. If you set it at 4 bedrooms, you will not see the available 3 bedroom properties, and you may miss the right property for you.

The next data point is the size of the home. My advice is to leave this as wide a range as possible. Telling yourself you must have a 3,000 SF home because you have too much furniture is like having the tail wag the dog. Bigger is not always better.

The range of lot sizes is next, and I also recommend you leave this as broad a range as possible. Also, lot size can be misleading. A house with an alley may have a large lot but not have a useful back yard.

In my opinion, the “days listed” data point is rather meaningless. If a house has been on the market for a long time, it is likely overpriced, but to filter out these properties can be counterproductive, particularly if the seller suddenly and dramatically lowers the asking price.

I also recommend leaving the range for year built as wide as possible. You may find a home that is either newer or older than what you were looking for is actually better suited to your needs. Many older homes have been tastefully updated and present as well as new homes.

Another search tag is to show only those properties that have a certain percentage price drop recently. This is a good filter to have, particularly on an email update. It is common for homeowners to give up holding out for a high asking price and dramatically reduce their price. This is generally a sign of a motivated seller ready to negotiation a sale in earnest.

There are also a series of check boxes to expand or limit your searches to include many different property types. This can be useful if you have very specific features you are looking for. Also, you can set up different searches to show both the for-sale market and the rental market for a given set of search parameters. That information can be very useful for establishing comparative rents and determining fundamental valuations.

You can also filter your search results to only display properties within a specific school district. This is a very important feature among many buyers. It it important to note that school district boundaries do not necessarily follow city boundaries. For example, areas within Irvine are serviced by the Santa Ana and Tustin school districts as well as the Irvine school district.

The Walk Score is a subjective measure of how easy it is to live a lifestyle without an automobile. Many downtown urban areas earn high walkability scores because the conveniences of modern living are readily accessible on foot. Most suburban areas score poorly for walkability. With the reliance modern society has for automobiles, holding out for a high walkability score will filter most properties.

As a sign of the times, there is a filter where you can see only short sales and preforeclosures or properties owned by lending institutions.

You can also opt to see listings on Zillow. There is value in this, if you are looking for properties offered for sale by their owners.

The final checkbox tells the software to only search in the mapped area. There are times when the area you are interested in does not have a specific geographic designation. You can use this checkbox when you have zoomed in to a specific area or neighborhood and you only want to see properties in that location.

The lower left button will reset all the parameters to their default values. Don’t press this button by mistake or you will lose all the settings you input.

The lower right button tells the software to run the search and return your properties on the map display.

The search tool on the home page of Ideal Home Brokers is very powerful. You can see all properties that meet your criteria and find your ideal home.

Thank you again for allowing us the opportunity to present ourselves to you in this manner. We look forward to working with you.

Forward this to your friends:

The Mission of the IHB

The mission of the IHB is to provide general real estate education, to analyze and report market conditions, and to help people buy and sell homes.

The IHB Story

The IHB story is about a community of real estate watchers and seekers who banded together to tell the Truth about housing. The community grew strong through an exchange of information and entertaining online interaction; it was fun.

Out of this community, and the bubble blog community as a whole, a consensus opinion emerged of when, how and why an epic price crash was going to occur. I became one of the community scribes documenting the disaster and ultimately writing The Great Housing Bubble. It is the entire IHB community through research and reasoned opinion that created a collective consciousness bigger than all of us.

The binding principals and wisdom of the IHB guided us in the selection of services Ideal Home Brokers provides.

IHB Services

We perform the following services: (1) provide real estate instruction and evaluation; (2) foster a community of like-minded educators, professionals and everyday people in the IHB forums; (3) supply unique property valuation reports to our clients; and (4) assist buyers and sellers without pressure, manipulation, or emotional appeals.

The IHB began as the Irvine Housing Blog in September of 2006. The scope of the IHB was expanded in May of 2009 when the Ideal Home Brokers was added to its acronym. In the summer of 2009, the IHB: Ideal Home Buying process was unveiled.

Educate People about Residential Real Estate

The IHB started as a hobby to vent frustration, evolved into a source of real estate education, and now serves as a source for many to communicate and learn about local real estate. When the IHB entered the scene, the misinformation in the popular culture was astonishing, and it culminated in a massive real estate price bubble. We at the IHB want to make sure this disaster of The Great Housing Bubble never happens again.

The education from the IHB is free to all. Everything written for the IHB—over 200,000 words in over 1,000 posts and numerous PDF white papers—is available in multiple formats on our websites, http://www.irvinehousingblog.com and http://www.irvinehousingbrokers.com. There are many topics under the broad heading of residential real estate that can be found at our two sites. Your education continues there.

Part of this service is our commitment to nourish a community of educators, professionals and everyday people who come together to share their knowledge and real estate experience in the Irvine Housing Blog community forums. We have attracted parties from many disciplines and all walks of life. The forums are quite active and visited by over 1,500 people a day. If you have a specific question not answered by this book or the writings on our educational websites, you are encouraged to visit the forums and pose your questions there or email an IHB professional directly. At the IHB, we are here to serve.

Provide Honest and Fact-Based Assessment of Property Valuations

The Ideal Home Brokers exists to serve the needs of buyers and sellers. We provide a unique value-added service with our proprietary pre-bid and pre-listing report. We provide an unbiased opinion of value and a conceptual framework to help people understand the negotiation they will be undertaking. We make this same report available to both buyers and sellers.

With our accurate valuation reports we help sellers better understand the market conditions, price their homes properly, and maximize resale value. When we represent buyers we use these same reports to educate them on current and potential future market values. We help them to analyze the cost of buying as compared to renting to make sure the buying decision is the right one. Moreover, we believe in honest information based negotiation. We strongly believe that our client’s success is dependent upon creating a win-win transaction in which both the buyer and the seller are happy. Both parties know that they have participated in a fair and honest transaction free of deceptive sales tactics and manipulative negotiation.

Only the Truth

The sale of real estate sales is marred by the deplorable sales methods of many of its practitioners. The education and training of many agents is marked by high-pressure sales tactics, outright manipulation of both parties through emotional appeals, and a lack of clarity and honesty in communication. Much of the writing of the IHB emanated from a deep personal disgust with these practices and recognition of the role they played in the inflation of The Great Housing Bubble. No sales representative of the IHB will use these tactics; we have a zero-tolerance policy for violations.

There are many honest and ethical Realtors in the profession who are as dismayed about these sales tactics as we are. We hope our presence and practices serves as a call to action to good Realtors everywhere. We make our methods known to all in the hope that these methods and practices become adopted by others in the industry.

The IHB treats all customers with respect and provides integrity and honesty (and even bluntness) that our clients find refreshing. We provide free education, value-added services, and service with integrity and honesty. We are here to serve you.

Thank you again for allowing us the opportunity to present ourselves to you in this manner. We look forward to working with you.

I will be working with you as we search for your ideal home. I want you to be comfortable with the process of buying or selling your home. I promise to provide you with honorable representation and personal service. Trust is of ultimate importance when approaching the biggest transaction of your life. I am committed to earning your trust and helping to make a sometimes stressful process as comfortable as possible.

We will start by discussing openly and frankly about whether or not the time is right for you to buy or sell your home. As Larry mentioned, I encouraged many people not to buy while the bubble began to deflate and I also encouraged many to sell as I felt the peak neared. I continue to give advice that many would not expect from a real estate agent regarding home ownership. It is frustrating to see hard working; honest people lose their homes to foreclosure. It is equally disheartening to see those that did everything that they were told was right by those acting in self interest struggle for years to sustain ownership as a result of the bubble. The stress that people are going through and the strain it puts on families is a sad result of the bubble and the lies that accompanied it. For me as for most, family is the most important thing, as it should be; I work hard with my clients to make sure that they understand that owning a home can be a great thing, but only if the cost of their home still allows them to have time for their family.

I approach every negotiation I enter on behalf of my client as if I were negotiating for myself. I often advise my clients “If I were you….” The advice I provide is my honest opinion based upon years of real estate education and IHB principles, and the course of action I recommend is the one I would follow if I were in your circumstances. My goal is to see you in a comfortable home you can afford, and you will always get my best effort to that end.

I am drawn to the IHB because I share the commitment to excellence and the desire to educate people that makes the IHB a trusted resource. I want you to understand the realities of the real estate market, property negotiation, and the behavior of parties in the transaction. The more you know, the more empowered you are to make a good decision, and the more comfortable you will be with the outcome.

Shevy Akason — Ideal Home Brokers

Credentials:

Bachelor of Arts – Claremont Mckenna College 2003

Real Estate investor since 2004

Academic All American (basketball) – NDSCS 2001

Associates Degree- NDSCS – Business Administration 2001

As a competitive person I enjoy sports, team work, and a challenge. As a result I have enjoyed real estate ever since I can remember. The recent bubble was frustrating for me as I know it has been for many others. I was happy when I started reading Larry’s blog posts and realized that there were others out there that shared my views.

As a result of recent bubble that was particularly severe in California as compared to other areas of the country by 2004 when I was ready to start my real estate career, I invested in cash flow real estate out of state and took advantage of the low interest rates by getting 30 year fixed loans. This allowed me to stay involved with my primary real estate interest on a small level while I started a construction company with the hope that what I learned would add value that I could translate into my real estate career when the time was right.

Since late 2007 my focus has been real estate and helping people to navigate through today’s market. I am proud to be associated with Larry Roberts and the IHB’s values and principles. In addition, I am proud of the track record and the real estate business that I run. I pride myself on giving people a clear picture of the market and helping them to feel comfortable with the biggest decision of their lives while working through what can be a challenging process. I look forward to working with Larry provide a valuable alternative to the average residential real estate company.

Thank you again for sticking with us through these introductory emails. You should have a good idea of the kind of people we are. We look forward to working with you.

Sincerely,

Shevy Akason

When you are ready…

Forward this to your friends:

I am here to instruct you on the homebuying process and guide you on your journey. I want you to be financially stable and prosperous, and I want you to have a comfortable home. I began writing about real estate because I wanted to save people from financial ruin as the real estate bubble popped. Now, I help people like you through the homebuying process because I want them to have sound financial advice and accurate market analysis–two things in short supply in the Realtor community. The only way I can ensure buyers understand the market and purchase the right house for their circumstances is to guide them through the process. I rely on like-minded agents I trust to treat clients with caring, honesty and respect.

I will not be working with you directly during your homebuying adventure because helping buyers obtain real estate is a time-consuming business, and I have another full-time job as a land development consultant. However, I am the navigator on your journey, and I am always available by email to answer your questions and address your concerns. The agent(s) with whom you will be working are trained to do things the IHB way.

I want you to have peace-of-mind. I want you to know your guide on your homebuying journey is interested in your happiness and financial well-being. I promise that you will be given our honest opinion, factual market analysis, and you will not be pushed into buying anything. This will be one of the largest and most important purchases of your life. I want you to make the right one. I will not permit you to be pushed or manipulated by distasteful sales techniques, and I would rather forgo a commission than see you buy the wrong house at the wrong time.

Many of you already know me. Some of you have been reading my writing for years at the Irvine Housing Blog, and many have met me in person at our IHB block parties. You know the person I am and what I have done for the community. I want you to have the best representation possible, so when the time is right for you, I hope you contact us. We are here to serve.

I have always worked in real estate. For a while, I wanted to be a golf course architect, but I have spent most of my career as either a development project manager or a land planning consultant. I design master-planned communities, plan subdivisions and lay out commercial centers. It is great fun.

I originally had a real estate salesperson’s license in Florida 15 years ago, but I never saw myself as a sales professional — until now. Right now, I perceive a need in the community to have real estate brokerage services be provided in a different way. I am dismayed by the practices of the real estate sales community, and I want to change it. I am still idealistic enough to think change is possible.

For those of you who follow my writing on Irvine Housing blog, you know first hand the depth of my knowledge on residential real estate. Many of you have read my book, The Great Housing Bubble. You probably also know that I publicly predicted the deflation of the housing bubble, and I worked tirelessly to dissuade people from buying homes during the market’s decline. I did none of this for money; I wanted to serve the community. I still do.

Your next email will be from Shevy Akason. I trust you will be as impressed with him as I am. When I first met Shevy almost a year prior to launching Ideal Home Brokers, I was dubious that any real estate sales professional could be trusted to put the needs of their clients above their own needs. When I learned that he was giving up potential income by advising clients to rent rather than own during the deflation of the bubble, I was intrigued. When I saw his passion to help people and his genuine concern for their well being, I knew he was the right person to lead the Ideal Home Brokers sales team. He is a good man; you are safe with him.